295. Telegram From the Department of State to the Embassy in Iran0

921. Embtel 1008.1 Appreciate analysis reftel and recognize difficulty reaching firm conclusions in light current state GOI budget. Encouraged Amini attempting take steps however belatedly bring budgetary problem under control. It our position which should be made abundantly clear to GOI that resolution its fiscal problems primarily a task for Iranian Government itself. In this connection we are puzzled by your comment that it would “probably be too much to expect the Shah to bail Amini out of situation essentially created by Amini himself.” In our view where fault rests for current situation is academic. Fundamental question remains as to who has ability and power to correct it. It clear Shah is paramount authority and he, therefore, able take steps not possible for Prime Minister or others who do not hold his unique authority. Realize Shah interference into daily government business exposes him to direct line of political fire which may weaken his role as key element of stability in country. On other hand current budgetary problems appear pose substantial direct threat to Shah. Under these circumstances suggest Ambassador Holmes encourage Shah bring his power more [Page 727]fully into play either directly or through support of Amini’s efforts deal with budgetary and development problem. Unless disarray now evident in GOI cleared up, there seems to be little basis for international consultative group meeting in September to discuss Third Plan which presently remains our and IBRD objective. Wilson, Mid-East Director IBRD, who arriving Monday, will be instructed reflect these views to the GOI and Shah if he sees him. Suggest you seek opportunity discuss with Wilson on his arrival. McDiarmid trip postponed to end of June on Iranian request.

In making point that resolution budgetary problem primarily Iranian task, we should avoid giving an impression we favor one method of allocating resources including petroleum revenue over another. It should be made clear difficult choice between satisfying political and economic needs is Iranian responsibility. GOI cannot expect foreign assistance will be so generous as to relieve it of this responsibility. In this connection, we are disturbed by substantial evidence that GOI assumes solution will be in form of transitional emergency assistance from U.S. What U.S. seeks is evidence of responsible fiscal management. If this condition not met, increased foreign assistance does no more than postpone the inevitable day of reckoning.

In view of foregoing, we believe it premature to discuss AID levels or fix conditions such as those suggested final paragraph reftel. Several questions relating to more technical aspects reftel including request for full presentation 1340 and 1341 budget data and balance of payments projection will be subject separate cable.

Ambassador Holmes intends as matter first priority review situation with country team upon his return and submit assessment. Foregoing views, however, have not been discussed with him.2

Rusk
  1. Source: Department of State, Central Files, 888.00/6–1262. Secret; Priority. Drafted by Miklos (NEA/GTI); cleared by Ide (AID/NESA), Kaufmann (AID/NESA/GTIC), and Cottam; and approved by Grant.
  2. Document 292.
  3. Following Holmes’ return to Tehran, the Department of State advised him in telegram 928, June 19, that concern in Washington over Iran’s financial situation had increased and suggested that, pending his analysis, this concern be conveyed to the Shah in Holmes’ next conversation with him. (Department of State, Central Files, 888.10/6–1962) See Supplement, the compilation on Iran.